Here’s what happens to stocks once the bond rout ends

Dana Lyons, on his Tumblr blog, has taken a fresh look at what happens when 10-year Treasury yields ratchet up from a 52-week low to a five-month high within four months. Including the current move, he says this has happened 15 times since 1962.

“Collectively, the impact of the reversal spikes in yields has not been kind to equities,” he says. Lyons backs it up using this table, which shows that from the short to the long term, the yield spike has a been a “poor omen” for stocks (He’s also got a chart on his blog that maps out individual moves).

J. Lyons Fund Management/My401kPro.com

Of course, there have been a few exceptions — 1996, 2003 and 2010 and others — but he says many of those markets bore little resemblance to what we’re seeing now.

Whether history proves to repeat itself, this may lend credence to those who can’t shake worries about the potential market fallout from a bond rout.

Our chart of the day looks at the relationship between the euro and German bonds. Currencies should definitely be on your radar this morning, given dollar moves.

“So, once again the grand plan for the year (dollar strength) is close to tatters,” writes Simon Smith, chief economist at FxPro.com. But the bright side to that pullback is that it could be a boost to second-quarter earnings, says Charles Schwab’s chief investment strategist, Liz Ann Sonders. Read more here.

Our call of the day returns to one of the most beloved stocks of all time, Apple, and why it could be headed for a big breakout, one way or another.

Another read worth mentioning: smart-beta ETFs, and how this hot trend may not be such a great idea after all.

Key market gauges

Futures for the Dow
US:YMM5
S&P 500
US:ESM5
and Nasdaq
US:NQM5
have found some strength, as second thoughts about retail sales have given way to speculation about a delayed rate hike.

The euro
EURUSD, -0.0814%
is beating up the dollar, pushing above $1.14, as that rate view beats nowheresville Greek debt talks. European bond yields are up a bit. European stocks
SXXP, +0.16%
aren’t really going anywhere.

OilCLM5, +0.17%
futures were switching between gains and losses. Gold
US:GCM5
is tipping higher. The World Gold Council says global demand for gold fell 1% in the first quarter. Oh, and Chinese iron-ore prices fell off a cliff overnight.

In Asia, Hong Kong stocks inched up
HSI, -0.88%
led by Tencent Holdings.

The quote

“I particularly hope that the illegal fishing of the Patagonian Toothfish will be high on your list of priorities, because until that trade is stopped, there is little hope for the poor old albatross, for which I will continue to campaign.” — Some of the riveting stuff in Prince Charles’s so-called “black spider” memos to the U.K. government, published after a 10-year legal battle.

The economy

Weekly jobless claims are coming at 8:30 a.m. Eastern, along with producer prices for April. That is it.

Shake Shack Inc.
SHAK, +3.19%
could be in for early gains. Shares jumped in late trade after the burger chain’s results topped views from Wall Street analysts. J.C. Penney Inc.
JCP, -0.52%
may also rise, after the retailer reported lower costs and a sales uptick. Cisco Systems Inc.
CSCO, -1.70%
posted a small gain in revenue last night.

The call of the day

Apple shares have lost close to 2% so far this week. While shares are still up 18% year to date, the iPhone maker is now in its third-straight week of 1%-plus losses.

“After blowing out earnings, Apple’s stock put in a big reversal and headed lower into the end of April,” writes Gavin McMaster at See It Market. Since then, he says, shares have traded in a $10-$12 range since late February.

But he predicts “a bigger directional move” may be headed for Apple. His reasons are fairly technical. Among them, he points to Apple volatility, as measured by the CBOE Apple VIX Volatility index
VXAPL, -3.67%
which is near the lowest levels seen in the last six months.

McMaster isn't saying where he thinks that next Apple move will go, but thinks something could happen as soon as this summer. Read his full blog for more.

The chart

Some of us have been waking up to the bond world, especially that of the German bund, in a big way recently. The newest “thing to worry about” is a constant education. At least for this writer.

This chart from Société Générale shows just how much the bund and euro have been moving in lock step.

SG Cross Asset Research/Forex

“The further rise in bund yields is keeping EUR/USD bid and the short-term correlation between the Bund/Treasury spread and EUR/USD remains strong,” says SocGen strategist Kit Juckes. “Until bund yields peak, we can’t think about calling a top in the euro.”

Rising bond yields are a sign that investors believe in stronger growth and inflation in the future. In theory, more confidence in that region tends to spill over to the local currency, such as the euro. But of course, analysts can’t agree on whether that is what’s happening now.

Random reads

Mr. Burns, say it ain’t so.

from James L. Brooks' lawyer: "show will go on, Harry will not be part of it, wish him the best.". (1/2)

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